ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussions should be read in conjunction with our financial
statements and related notes thereto included in this Annual Report on Form
10-K. The following discussion contains forward-looking statements made pursuant
to the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934 and the Private Securities Litigation Reform Act of 1995. These statements
are based on our beliefs and expectations about future outcomes and are subject
to risks and uncertainties that could cause actual results to differ materially
from anticipated results. Factors that could cause or contribute to such
differences include those described under Part I, Item 1A - Risk Factors
appearing in this Annual Report on Form 10-K and factors described in other
cautionary statements, cautionary language and risk factors set forth in other
documents that we file with the Securities and Exchange Commission. We undertake
no obligation to publicly update forward-looking statements, whether as a result
of new information, future events or otherwise.

Overview

Celsion is an innovative oncology drug development company focused on the
development of treatments for those suffering with difficult to treat forms of
cancer. We are working to develop and commercialize more efficient, effective,
targeted chemotherapeutic oncology drugs based on our proprietary heat-activated
liposomal technology. The promise of this drug technology is to maximize
efficacy while minimizing side effects common to cancer treatments.

Our lead product ThermoDox® is being evaluated in a Phase III clinical trial,
which we refer to as the HEAT study, for primary liver cancer and two Phase II
studies for recurrent chest wall breast cancer and CRLM. ThermoDox® is a
liposomal encapsulation of doxorubicin, an approved and frequently used oncology
drug for the treatment of a wide range of cancers. Localized mild hyperthermia
(greater than 40 degrees Celsius) releases the encapsulated doxorubicin from the
liposome enabling high concentrations of doxorubicin to be deposited
preferentially in a targeted tumor.

Significant Events

In August 2011, we announced that we had reached our preplanned enrollment
objective of 600 patients in the pivotal Phase III HEAT study. The target
enrollment figure is designed to ensure that the study's primary end point,
progression-free survival, can be achieved with adequate statistical power, and
is one of two triggers for an interim efficacy analysis by the study's DMC. The
second trigger was the occurrence of 190 progression-free survival (PFS) events
in the study population. We met the second trigger of 190 PFS events in the
third quarter of 2011, which allowed us to conduct the planned interim analysis
in the fourth quarter of 2011.

Consistent with our global regulatory strategy, we are continuing to enroll
patients in the HEAT study in order to randomize at least 200 patients in the
Peoples Republic of China (PRC), a requirement for registrational filing in the
PRC. The HEAT study has enrolled a sufficient number to support registrational
filings in South Korea and Taiwan, two important markets for
ThermoDox®. Continued enrollment will not affect the timing of the planned
interim analysis, and has the potential to reduce the timeline of the final data
read out, though we can not guarantee such a result.

In November 2011, we announced that the independent Data Monitoring Committee
(DMC) for our Phase III HEAT Study, had completed a planned interim analysis for
safety, efficacy and futility and unanimously recommended that the study
continue to its final analysis as planned. The DMC evaluated data from 613
patients in its review, which was conducted following the realization of 219
progression-free survival (PFS) events within the study population. A total of
380 events of progression are required to reach the planned final analysis of
the study.

Consistent with our global regulatory strategy, we are continuing to enroll
patients in the HEAT study in order to randomize at least 200 patients in the
Peoples Republic of China (PRC), a requirement for registrational filing in the
PRC. The HEAT study has enrolled a sufficient number to support registrational
filings in South Korea and Taiwan, two important markets for
ThermoDox®. Continued enrollment will not affect the timing of the planned
interim analysis, and has the potential to reduce the timeline of the final data
read out, though we can not guarantee such a result.

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During 2011, we completed the following equity transactions:

· We raised gross proceeds of approximately $5.1 million in a registered direct
offering on January 18, 2011, in which we issued 5,000 shares of 8% redeemable
convertible preferred stock (which were all converted into shares of common
stock in connection with the Company's registered direct offering on July 25,
2011), and warrants to purchase up to 2,083,333 shares of common stock.

· We raised gross proceeds of approximately $8.6 million in a private placement
offering on June 2, 2011, in which we issued 3,218,612 shares of common stock
and warrants to purchase up to 3,218,612 shares of common stock.

· We raised gross proceeds of approximately $6.6 million in a registered direct
offering on July 6, 2011, in which we issued 2,095,560 shares of common stock
and warrants to purchase up to 628,668 shares of common stock.

· We raised gross proceeds of approximately $13.0 million in a registered direct
offering on July 25, 2011, in which we issued 3,047,682 shares of common stock
and warrants to purchase up to 914,305 shares of common stock.

· We raised gross proceeds of approximately $5.4 million in a private placement
offering on July 25, 2011, in which we issued 1,281,031 shares of common stock
and warrants to purchase up to 512,412 shares of common stock.

· We raised gross proceeds of approximately $15.0 million in a private placement
offering on December 6, 2011, in which we issued 6,486,488 shares of common
stock and warrants to purchase up to 3,243,244 shares of common stock.

· We raised gross proceeds of approximately $3.2 million by selling 1,340,514
shares of common stock under our committed equity financing facility with
Small Cap Biotech Value Ltd. during 2011.

As a result of these equity transactions, the Company collectively raised $58.0
million in gross proceeds by issuing approximately 19.7 million shares of our
common stock and warrants to purchase approximately 10.6 million shares of our
common stock. This includes approximately $433,000 of gross proceeds received
from the exercise of certain warrants issued by the Company to certain holders
thereof into approximately 157,000 shares of common stock.

We believe that our cash and investment resources of $30.5 million on hand at
December 31, 2011 are sufficient to fund operations into the second half of
2013.

Critical Accounting Policies and Estimates

Our financial statements, which appear at Item 7 to this Annual Report on Form
10-K, have been prepared in accordance with accounting principles generally
accepted in the United States, which require that we make certain assumptions
and estimates and, in connection therewith, adopt certain accounting policies.
Our significant accounting policies are set forth in Note 1 to our financial
statements. Of those policies, we believe that the policies discussed below may
involve a higher degree of judgment and may be more critical to an accurate
reflection of our financial condition and results of operations.

Stock-Based Compensation

We follow the provisions of ASC topic 718 "Compensation" which requires the
expense recognition over a service period for the fair value of share based
compensation awards, such as stock options, restricted stock and performance
based shares. This standard allows us to establish modeling assumptions as to
expected stock price volatility, option terms, forfeiture and dividend rates,
which directly impact estimated fair value as determined. Our practice is to
utilize reasonable and supportable assumptions which are reviewed with the board
and its appropriate committee.

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We review our financial reporting and disclosure practices and accounting
policies on an ongoing basis to ensure that our financial reporting and
disclosure system provides accurate and transparent information relative to the
current economic and business environment. As part of the process, the Company
reviews the selection, application and communication of critical accounting
policies and financial disclosures. The preparation of our financial statements
in conformity with accounting principles generally accepted in the United States
requires that our management make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. We review our estimates
and the methods by which they are determined on an ongoing basis. However,
actual results could differ from our estimates.

Results of Operations

Comparison of Fiscal Year Ended December 31, 2011 and Fiscal Year Ended December
31, 2010.

Licensing Revenue

In the first quarter of 2011, we recognized $2 million in licensing revenue
after amending our development, product supply and commercialization agreement
for ThermoDox® with Yakult Honsha Co. to provide for accelerated payments of up
to $4 million in future milestone payments, including $2 million that was paid
to us on January 12, 2011, in exchange for a reduction in product approval
milestones that we may receive in the future under the Yakult Agreement. We had
no licensing revenue for the year ended December 31, 2010.

Research and Development Expenses

Research and Development (R&D) expenses increased to $19.9 million in 2011
compared to $14.7 million in 2010. Costs associated with our Phase III HEAT
study increased to $12.1 million in 2011 compared to $8.2 million in 2010. This
increase is primarily the result of costs for investigator grants, monitoring
costs and milestone payments associated with higher patient enrollment levels
for the Phase III HEAT study. Costs associated with our recurrent chest wall
breast cancer clinical trial (RCW) decreased to $0.4 million in 2011 compared to
$0.6 million in 2010. We completed the Phase I portion of this trial in the
first half of 2011. In 2011, we initiated a Phase II study of ThermoDox® in
combination with radiofrequency ablation (RFA) for the treatment of colorectal
liver metastases (CRLM). Costs associated with the Company's CRLM trial were
$0.3 million in 2011. Costs associated with the production of Thermodox® trials
increased to $4.3 million in 2011 compared to $2.9 million in the same period of
2010 primarily due to ongoing progress towards developing our commercial
manufacturing capabilities for ThermoDox®. Other preclinical, regulatory,
personnel and other costs remained relatively unchanged at $2.8 million in 2011
from 2010.

General and Administrative Expenses

General and administrative expenses increased slightly to $5.2 million in 2011
compared to $4.9 million in 2010. We continue to carefully monitor operating
costs and focus our efforts and financial resources on completing enrollment and
patient follow-up in the Phase III HEAT study.

Other income (expense)

Other income for 2011 was not significant compared to $0.2 million in 2010. In
November 2010, we were awarded a $244,000 grant under the Qualifying Therapeutic
Discovery Project (QTDP) program under The Patient Protection and Affordable
Care Act of 2010 (PPACA). This maximum grant amount for a single program was
awarded to us for the Thermodox® clinical development program, which is
currently conducting clinical trials for primary liver cancer and recurrent
chest wall breast cancer.

Change in common stock warrant liability

A common stock warrant liability was incurred as a result of warrants issued in
a public offering in September 2009. This liability is calculated at its fair
market value using the Black-Scholes option-pricing model and is adjusted at the
end of each quarter. During 2011 and 2010, we recorded a non-cash benefit of
$0.1 million and $0.6 million respectively based on the change in this fair
value during the respective years.

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Interest income and expense

Interest income was $0.2 million in 2011 as a result of the financing activities
we completed during 2011. In connection with the shares of preferred stock we
issued in our January 2011 preferred stock offering, we incurred dividend
charges of approximately $0.5 million in 2011. In connection with our July 2011
financings, all outstanding shares of preferred stock mandatorily converted into
common stock in August 2011. See the section titled "Financial Condition,
Liquidity and Capital Resources" below for additional information regarding the
July 2011 financings and the conversion of preferred stock.
Interest income and interest expense were not significant in 2010.

Financial Condition, Liquidity and Capital Resources

Since our inception, we have incurred significant losses and negative cash flows
from operations. We have financed our operations primarily through the net
aggregate proceeds of $43 million we received from the divestiture of our
medical device business to Boston Scientific in 2007 (paid to us in installments
of $13 million in 2007 and $15 million in each of 2008 and 2009), amounts
received under our product licensing agreement with Yakult and a series of
equity financings. The process of developing and commercializing ThermoDox®
requires significant research and development work and clinical trial studies,
as well as significant manufacturing and process development efforts. We expect
these activities, together with our general and administrative expenses to
result in significant operating losses for the foreseeable future. Our expenses
have significantly and regularly exceeded our revenues, and we had an
accumulated deficit of $124 million at December 31, 2011.

At December 31, 2011 we had total current assets of $31.5 million (including
cash, cash equivalents and short term investments of $30.5 million) and current
liabilities of $6.2 million, resulting in a net working capital of $25.3
million. At December 31, 2010, we had total current assets of $2.0 million
(including cash, cash equivalents and short term investments of $1.5 million)
and current liabilities of $6.8 million, resulting in a working capital deficit
of $4.8 million. The equity financing transactions in 2011 raised approximately
$58 million in gross proceeds, significantly strengthening our financial
condition.

We believe that our cash and investment resources of $30.5 million on hand at
December 31, 2011 are sufficient to fund operations into the second half of
2013.

Net cash used in operating activities for the 2011 was $22.8 million. Our 2011
net loss included $1.3 million in non-cash stock-based compensation expense.

We will require additional capital to develop our product candidates through
clinical development, manufacturing, and commercialization. We may seek
additional capital through further public or private equity offerings, debt
financing, additional strategic alliance and licensing arrangements,
collaborative arrangements or some combination of these alternatives. If we
raise additional funds through the issuance of equity securities, stockholders
will likely experience dilution and the equity securities may have rights,
preferences, or privileges senior to those of the holders of our common stock.
If we raise funds through the issuance of debt securities, those securities
would have rights, preferences, and privileges senior to those of our common
stock. If we seek strategic alliances, licenses, or other alternative
arrangements, such as arrangements with collaborative partners or others, we may
need to relinquish rights to certain of our existing or future technologies,
product candidates, or products which we would otherwise seek to develop or
commercialize on our own, or to license the rights to our technologies, product
candidates, or products on terms that are not favorable to us. The overall
status of the economic climate could also result in the terms of any equity
offering, debt financing, or alliance, license, or other arrangement being even
less favorable to us and our stockholders than if the overall economic climate
were stronger. In addition, we may continue to seek government sponsored
research collaborations and grants.

If adequate funds are not available through either the capital markets,
strategic alliances, or collaborators, we may be required to delay, reduce the
scope of or eliminate our research, development or clinical programs or our
manufacturing or commercialization efforts, effect additional changes to our
facilities or personnel or obtain funds through other arrangements that may
require us to relinquish some of our assets or rights to certain of our existing
or future technologies, product candidates or products on terms not favorable to
us. Our inability to raise additional capital, or to do so on terms reasonably
acceptable to us, may have a negative effect on our business, results of
operations and financial condition.

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Net cash provided by financing activities was $52.8 million during 2011 which
consisted of $4.3 million from the January 2011 preferred stock offering
described below under the heading "January 2011 Preferred Stock Offering", $7.8
million from the private placement offering we completed under the heading "June
2, 2011 Private Placement Offering", $6.0 million from the registered direct
offering we completed under the heading "July 6, 2011 Registered Direct
Offering", $17.0 million from the registered direct and private placement
offerings we completed under the heading "July 25, 2011 Registered Direct and
Private Placement Offerings", $13.9 million from the private placement offering
we completed under the heading "December 6, 2011 Private Placement Offering",
$0.4 million from the exercise of preferred stock and common stock warrants and
$3.4 million of gross proceeds from the committed equity financing facility
described below under Part II, Item 2 "Unregistered Sales of Equity Securities
and Use of Proceeds".

The $22.8 million net cash requirement was mostly funded from cash and short
term investments. At December 31, 2011, we had cash, cash equivalents and short
term investments of $30.5 million. We will need substantial additional capital
to complete our clinical trials, obtain marketing approvals and to
commercialize our products.

January 2011 Preferred Stock Offering

On January 14, 2011, we completed the issuance and sale of 5,000 shares of our
8% redeemable convertible preferred stock and warrants to purchase up to
2,083,333 shares of common stock to institutional investors as well as certain
officers and directors of the Company in a registered direct offering. The
convertible preferred stock and warrants were sold in units, with each unit
consisting of one share of convertible preferred stock and a warrant to purchase
up to 416.6666 shares of common stock at an exercise price of $3.25 per whole
share of common stock. The units were offered and sold to unaffiliated third
party investors at a negotiated purchase price of $1,000 per unit and to
officers and directors at an at-the-market price of $1,197.92 per unit in
accordance with the NASDAQ Stock Market Rules. Concurrent with the issuance and
sale of the units, the Company issued warrants to purchase up to 350 shares of
the convertible preferred stock at an exercise price of $1,000 per whole share
of preferred stock to certain affiliates of Dominick & Dominick LLC, as
placement agent for the offering. The Company received gross proceeds from the
offering of approximately $5.1 million, before deducting placement agent fees
and offering expenses.

Each share of preferred stock was convertible into shares of common stock at an
initial conversion price of $2.40 per share, subject to adjustment in the event
of stock splits, recapitalizations or reorganizations affecting all holders of
common stock equally. The mandatory conversion provisions of the convertible
preferred stock were triggered by the July 25, 2011 registered direct and
private placement offerings described below under the heading "July 25, 2011
Registered Direct and Private Placement Offerings", since the sale of our common
stock in those offerings was for not less than $4.00 per share and we received
aggregate gross proceeds of at least $10 million in those offerings. As a
result, 839 shares of convertible preferred stock which were outstanding at the
time, were converted into 349,582 shares of our common stock.

Until the shares of convertible preferred stock were converted on or about
August 5, 2011, issued and outstanding shares accrued dividends at a rate of 8%
per annum. Dividends on the shares of convertible preferred stock were payable
on a quarterly basis from the original issue date, commencing on April 15, 2011
and were payable only in cash. During the first nine months of 2011, the Company
accrued dividends of approximately $0.5 million on the outstanding shares of
preferred stock. These amounts were paid within 15 days of the end of each
fiscal quarter and upon conversion of the shares of convertible preferred stock.

During the third quarter of 2011, warrants issued in this offering were
exercised, resulting in receipt by the holders of such warrants of 71,666 shares
of common stock collectively. The Company received gross proceeds of $172,000
from the exercise of these warrants.

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June 2, 2011 Private Placement Offering

On June 2, 2011, we completed the issuance and sale of 3,218,612 shares of our
common stock and warrants to purchase up to 3,218,612 shares of common stock to
institutional investors as well as certain officers and directors of the Company
in a private placement transaction. The common stock and warrants were sold in
units, with each unit consisting of one share of common stock and a warrant to
purchase one share of common stock. Units sold to unaffiliated institutional
investors were sold at a negotiated purchase price of $2.65 per unit and to
officers and directors at $2.895 per unit, the latter representing the
consolidated closing bid price per share of common stock plus a warrant premium
of $0.125 per unit. The warrants are exercisable on or after December 2, 2011 at
an exercise price of $2.77 and expire 78 months after the date of issuance. The
Company received gross proceeds from the offering of approximately $8.6 million,
before deducting placement agent fees and offering expenses. Concurrent with the
issuance and sale of the units, the Company entered into a registration rights
agreement with the investors that required the Company to file a registration
statement with the Securities and Exchange Commission covering the resale by the
investors of the common stock and the shares of common stock issuable upon
exercise of the warrants, which registration statement became effective on June
24, 2011.

July 6, 2011 Registered Direct Offering

On July 6, 2011, we completed the issuance and sale in a registered direct
offering of 2,095,560 shares of our common stock and warrants to purchase up to
628,668 shares of common stock to institutional investors. The common stock and
warrants were sold in units at a price of $3.1675 per unit, with each unit
consisting of one share of common stock and a warrant to purchase 0.3 shares of
common stock. The warrants were exercisable immediately at an exercise price of
$3.13 and expire five years from the date of issuance. The Company received
gross proceeds from the offering of approximately $6.6 million, before deducting
placement agent fees and offering expenses.

During the third quarter of 2011, warrants issued in this offering were
exercised for 71,034 shares of common stock. The Company received gross proceeds
of $222,336 from the exercise of these warrants.

July 25, 2011 Registered Direct and Private Placement Offerings

On July 25, 2011, we completed the issuance and sale in a registered direct
offering of 3,047,682 shares of our common stock and warrants to purchase up to
914,305 shares of common stock to institutional investors. The common stock and
warrants were sold in units at a price of $4.2575 per unit, with each unit
consisting of one share of common stock and a warrant to purchase 0.3 shares of
common stock. The warrants were exercisable immediately at an exercise price of
$4.22 and expire five years from the date of issuance. The Company received
gross proceeds from the offering of approximately $13.0 million, before
deducting placement agent fees and offering expenses.

On July 25, 2011, we also completed the issuance and sale of 1,281,031 shares of
our common stock and warrants to purchase up to 512,412 shares of common stock
to institutional investors as well as a director of the Company and an investor
affiliated with another director of the Company in a private placement
transaction. The common stock and warrants were sold in units at a price of
$4.27 per unit, with each unit consisting of one share of common stock and a
warrant to purchase 0.4 shares of common stock. The warrants were exercisable
immediately at an exercise price of $4.22 and expire five years from the date of
issuance. The Company received gross proceeds from the offering of approximately
$5.5 million, before deducting placement agent fees and offering expenses.
Concurrent with the issuance and sale of the units, the Company entered into a
registration rights agreement with the investors that required the Company to
file a registration statement with the Securities and Exchange Commission
covering the resale by the investors of the common stock and the shares of
common stock issuable upon exercise of the warrants, which registration
statement became effective on September 22, 2011.

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December 6, 2011 Private Placement Offering

On December 6, 2011, the Company completed the issuance and sale of 6,486,488
shares of common stock and warrants to purchase up to 3,243,244 shares of common
stock in a private placement transaction to certain institutional investors as
well as two members of our board of directors. The common stock and warrants
were sold in units, with each unit consisting of one share of common stock and a
half of a warrant to purchase one share of common stock. Units sold to
unaffiliated institutional investors were sold at a negotiated purchase price of
$2.3125 per unit representing the consolidated closing bid price per share of
common stock plus a warrant premium of $0.125 per unit. The Company received
gross proceeds from the offering of approximately $15.0 million before deducting
estimated offering expenses. Each warrant to purchase shares of the Company's
common stock has an exercise price of $2.36 per share, for total potential
additional proceeds to the Company of up to approximately $7.5 million upon
exercise of the warrants. The warrants are immediately exercisable for cash or,
solely in the absence of an effective registration statement, by net exercise
and will expire five years from the date of issuance. Concurrent with the
issuance and sale of the units, the Company entered into a registration rights
agreement with the investors that required the Company to file a registration
statement with the Securities and Exchange Commission covering the resale by the
. . .